When the news is blaring that stocks are falling, it can set off an urge that's the personal finance equivalent of rubbernecking at a traffic accident. Your impulse may be to log into your investment account and see what damage has been done to your investment portfolio and, potentially to your net worth.
Joe Wirbick, a financial planner in Lancaster, Pennsylvania, suggests you go easy on yourself instead and not make yourself upset by comparing your portfolio to what it had looked like in the past or what you had hoped it would look like now. “Checking daily, weekly, or monthly — especially when stocks are down — is just going to make you anxious,” he says. “That’s not helpful.”
The challenge when markets are volatile is to stay committed to your long-term investment strategy, especially if you're relatively new to investing. And that can be harder to do when you log in and see you’ve lost some personal capital.
It’s human nature to be upset by the prospect of a loss. A psychology study coauthored by a Nobel Prize-winning economist figured out that we feel the pain of a loss about two times more intensely than we feel the pleasure of a gain.
If you’re being a bit of a financial masochist and checking your portfolio often when stocks are falling, your desire to stop the “pain” may lead you to make some big-picture portfolio management decisions about your mix of stocks and bonds and other assets. You may choose to move your money into a more conservative portfolio that owns fewer stocks or to a different kind of an investment altogether, like real estate. That can help make you feel better in the heat of a market meltdown, but those kinds of impulse decisions can come at a steep cost.
If you have a lot of years to go before you expect to rely on the money your investments have made for you, like, for example, for when you've retired, moving money out of stocks when they are falling means you will likely end up with a lot less money later. (That dangerous strategy is known as timing the market.)
“You’re investing for the long term, and if you have the right portfolio mix, you don’t want to get caught up in the windstorms that can hit in the short term. That’s not going to get you the results you want,” says Andrew Whalen, a Las Vegas-based financial advisor. “During heightened times of volatility, we suggest trying to leave your statements in the mailbox, unopened.”
So how often should you look? Aim to check in on your investments no more than per quarter, Wirbick says. Even then, your default approach should be to review without necessarily making changes.
"If you’re under 50, checking your portfolio quarterly is more than sufficient,” he says. “You’re at a life stage when you shouldn’t do anything. You want to stay the course. You can handle the ups and downs.”
When you do check, remind yourself that “volatility is normal,” says Greg Hammer, a financial advisor in Schererville, Indiana.
“If you have 60 or 70% of your portfolio invested in stocks, you should expect losses of 10, 15 to 20% at times,” Hammer says. Indeed, since the end of World War II there have been 12 bear markets, which is when stocks lose at least 20% of their value. The average bear market decline was 33%.
But even with all those bad times, the long-term annual gain for stocks is more than 10%. “Volatility won’t hurt you as long as you don’t panic,” says Hammer. Sticking it out in the bad times so your portfolio can soak up the good times is the ticket to reaching your long-term investing goals.
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